Does Old Republic International’s Share Price Gain of 35% Match Its Business Performance?

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The main point of investing for the long term is to make money. But more than that, you probably want to see it rise more than the market average. But Old Republic International Corporation (NYSE:ORI) has fallen short of that second goal, with a share price rise of 35% over five years, which is below the market return. However, if you include the dividends then the return is market beating. Zooming in, the stock is up just 4.9% in the last year.

See our latest analysis for Old Republic International

While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. One flawed but reasonable way to assess how sentiment around a company has changed, is to compare the earnings per share (EPS) with the share price.

Old Republic International’s earnings per share are down 6.3% per year, despite strong share price performance over five years. This means it’s unlikely the market is judging the company based on earnings growth. Since the change in EPS doesn’t seem to correlate with the change in share price, it’s worth taking a look at other metrics.

In contrast revenue growth of 3.1% per year is probably viewed as evidence that Old Republic International is growing, a real positive. In that case, the company may be sacrificing current earnings per share to drive growth.

The chart below shows how revenue and earnings have changed with time, (if you click on the chart you can see the actual values).

NYSE:ORI Income Statement, February 21st 2019
NYSE:ORI Income Statement, February 21st 2019

We like that insiders have been buying shares in the last twelve months. Even so, future earnings will be far more important to whether current shareholders make money. This free report showing analyst forecasts should help you form a view on Old Republic International

What About Dividends?

When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. The TSR is a return calculation that accounts for the value of cash dividends (assuming that any dividend received was reinvested) and the calculated value of any discounted capital raisings. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. In the case of Old Republic International, it has a TSR of 74% for the last 5 years. That exceeds its share price return that we previously mentioned. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

It’s nice to see that Old Republic International shareholders have received a total shareholder return of 8.8% over the last year. That’s including the dividend. However, that falls short of the 12% TSR per annum it has made for shareholders, each year, over five years. The data on insider buying is an obvious place to start. You can click here to see who has been buying shares – and the price they paid.

There are plenty of other companies that have insiders buying up shares. You probably do not want to miss this free list of growing companies that insiders are buying.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.